Withdrawal of the multifibre agreement and Indian textile industry: Concerns, efforts, and achievements

Anup Kumar Bhandari

Review of Development Economics, 2021, vol. 25, issue 3, 1397-1436

Abstract: Multifibre agreement (MFA)–endorsed safe textile export markets were abolished in 2005. For India, scholars anticipated both enormous potential gain from the post‐MFA free market and the threat of inevitably increasing competition. Researchers also emphasized selected channels to succeed, including effective exploitation of scale economies and technological upgradation, for fruitful market gain in this regard. Against this backdrop, we study the Indian textile industry from 1999–2000 through 2014–2015 to examine (1) the role of economies of scale to achieve efficiency gain and therefore competitiveness, (2) the industry's efforts toward technological upgradation, and (3) its overall sustainability through net export expansion, profitability, and total factor productivity (TFP) growth. Results show that (1) size‐efficiency nexus is positively significant and therefore the industry can achieve further efficiency gain and competitiveness by expanding scale of operations at the firm level; (2) despite considerable increase in R&D investments, the industry's overall production technological status has deteriorated in the post‐MFA regime and therefore has substantial scope of improvement, possibly through more effectively using the prevailing technological upgradation funds scheme (TUFS) and other official arrangements; and (3) although India achieves sizeable net export expansion and TFP gains, the industry's profitability scenario seems bleak and requires further attention for its better sustainability.

Date: 2021
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